Through our work on both the sell-side and the buy-side, we keep in close contact with private equity funds that invest in our industry coverage areas. Given macro crosscurrents, our team reached out to over 50 lower-middle market firms in our network to gauge their sentiment on 2023’s M&A environment. They weighed in on strategy changes, foreseeable deal making challenges, fundraising headwinds, deal structure and valuation expectations for 2023. We thought the survey insights would be helpful to our broader network, so we’ve summarized their perspectives below.
In 2021, the M&A market experienced unprecedented valuations and deal activity which have since returned to more normalized levels due to the tightening of credit markets and increased volatility of the macroeconomic landscape. Going forward, there are some questions around further credit market tightening in the wake of banking sector challenges. Despite potential challenges presented by these market conditions, private equity buyers continue to have ample capital, and they are eager to deploy it in the right investment opportunities.
While larger deals are more impacted by credit market volatility, the appetite for lower middle market deals remains consistent. Financial sponsors are becoming increasingly cautious as it relates to investments in cyclical industries, and they are instead focusing on mission-critical solutions and add-on opportunities for portfolio companies to continue to build on existing strategies. Buyers are prioritizing profitability, reflecting the current market conditions’ need for stability and sustainable returns.
How do you expect your strategy might change in 2023?
What do you foresee being the largest challenge to closing deals in 2023?
In 2023, what is your expectation for valuation compared to 2022?
How would you describe the current capital raising environment relative to recent years?
In summary, the 2022 market correction to valuations seems to have leveled off. Despite headwinds, private equity investors remain committed to deploying capital in resilient middle market businesses with promising growth prospects.
DISCLAIMER This presentation is intended for information and discussion purposes only and does not constitute legal or professional investment advice. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of Harbor View Advisors, LLC (“HVA”). The information in this presentation was compiled from sources believed to be reliable for informational purposes only. HVA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented.
